Iran War Fuels UK Inflation, UBS Cuts Eurozone

Part of Central Banks Confront Geopolitical Inflation

Araverus Team|Wednesday, March 25, 2026 at 8:10 AM

Araverus Team

Mar 25, 2026 · 8:10 AM

European Equities · Iran Conflict · Oil Prices · UK Inflation

European Equities Iran Conflict Oil Prices UK Inflation

UK consumer price inflation held at 3.0% in February, unchanged from January, but this data is considered outdated as the Bank of England sharply increased its inflation forecast to 3.5% by mid-year due to the escalating Iran conflict.

The Office for National Statistics reported lower petrol prices offset rising clothing costs in February, a relief expected to be short-lived as oil prices are now 50% higher than a month ago. Public inflation expectations, according to a Citi survey, surged to 5.4% from 3.3%, marking the largest monthly increase in over 20 years.

Despite this, Bank of England Governor Andrew Bailey advised against firm bets on interest rate hikes, even as financial markets anticipate two or three quarter-point rises this year. Core inflation, excluding volatile items, rose slightly to 3.2% from 3.1%, indicating persistent price pressures.

Concurrently, European stock indexes, including the STOXX 600 and FTSE 100, rose by 1.4% and 1.1% respectively, and oil prices eased after US President Donald Trump's comments about potential ceasefire negotiations with Iran, despite Iran's denial of direct talks. Brent crude futures fell 5.2% to $99.01 a barrel, and WTI crude futures dropped 5.1% to $87.62 a barrel.

However, UBS's Chief Investment Office downgraded Eurozone equities to "neutral," cutting its 2026 earnings growth forecast to 5% from 7%, citing energy flow disruptions from the Iran conflict as a significant risk to the region's manufacturing recovery. UBS simultaneously upgraded Swiss equities and European health care to "Attractive." BlackRock CEO Larry Fink warned oil prices could reach $150 a barrel, potentially causing a global recession.